Federal prosecutors on Monday described former British tech star Mike Lynch as the ruthless mastermind of an $11 billion deal that defrauded Silicon Valley pioneer Hewlett Packard.
But his lawyer described him as a visionary who became the scapegoat for a bad decision by a desperate buyer.
Contrasting portraits of Lynch, 58, emerged at the start of a criminal trial surrounding HP’s acquisition of British software maker Autonomy in 2011 — a deal that was initially hailed as a coup but instead unraveled into a costly debacle.
Lynch, once hailed as an exemplar of British ingenuity, faces 16 counts of fraud and conspiracy that could land him in prison for more than 20 years if a jury convicts him on all counts. The trial in federal court in San Francisco is expected to last two to three months.
While the trial focuses mainly on Lynch’s 16-year reign that culminated in his 2012 firing by then-HP CEO Meg Whitman just nine months after taking over, the proceedings will also shed light on the decline and chaos at the storied Silicon Valley company.
Whitman’s predecessor, Leo Apotheker, grabbed Autonomy as part of a plan to reduce HP’s dependence on PC and printer sales amid upheaval caused by the rise of smartphones. But after the deal spiraled into financial scandal, Whitman laid off thousands of workers as HP’s fortunes plummeted, eventually leading to the company’s split in two in 2015.
Lynch’s attorney, Reid Weingarten, pointed to HP’s deterioration in 2011 as the main reason the company sought to complete the Autonomy acquisition even without conducting a thorough review of the business. Things were so bad, Weingarten told the jury, that Apotheker compared HP to a “flaming rig” in the ocean. Meanwhile, Whitman, he said, praised Autonomy’s products as “magical software.”
“HP was in dire straits, so they had to do something,” Weingarten told the jury during his hour-long opening statement.
In his 80-minute opening statement, federal prosecutor Adam Reeves argued that Lynch began lying to HP executives as soon as talks about the deal began with a meeting in early 2011 held at HP’s headquarters in Palo Alto, California — the same city where Bill Hewlett and Dave Packard started the company in 1939.
“It was the scene of an $11 billion fraud,” Reeves said of the first meeting between Lynch and HP executives. Although Lynch appeared to be running a “money-making machine,” Reeves said, “Autonomy’s success is actually an elaborate multi-layered, multi-year scam.”
Reeves said the prosecution will present witnesses who will explain how Autonomy cooked its books and made a series of deals to inflate its revenue in illegal ways over a 2 1/2-year period that forced HP to pay for a failed acquisition. And Lynch orchestrated the fraud, according to Reeves.
“He was a domineering, controlling boss,” Reeves told the jury. “He led Autonomy with an iron hand for many years.”
While acknowledging that Lynch was a “tough person” who demanded the best from his employees, Weingarten said Lynch delegated most accounting and marketing matters while focusing primarily on innovation.
“Mike was ahead of everybody for a long time,” Weingarten said. “He’s a startup guy who liked to eat cold pizza at 2 a.m. while inventing something.”
Weingarten also showed the jury an internal HP document drawn up in July 2011 — a month before the acquisition was announced — that valued Autonomy at $46 billion, suggesting the valuation showed HP thought it was getting a bargain for the acquisition. rights to software that helped companies find information buried in e-mail and Word documents.
Autonomy’s “software was so powerful that no competitor came close and it sold like hotcakes,” Weingarten said.
Lynch, who has been free on $100 million bail since he was extradited to the United States last May, sat stoically through most of the opening statements as he watched presentations flashed on a screen and occasionally glared at the lawyers and the jury.
The jury will eventually hear from Lynch, who Weingarten has promised will testify to tell his side of the story.
“We want you to get to know him, we think it helps us,” Weingarten said.
The testimony is likely to open the door for prosecutors to investigate Lynch’s motives for making the deal that pocketed more than $800 million, according to court documents.
Apotheker, who replaced Whitman a few weeks after the autonomy deal was announced, is expected to testify. Whitman, currently the US ambassador to Kenya, is not expected to appear in court during the trial, although her management of HP and the takeover of Autonomy are expected to be put under the microscope.
Lynch’s trial will also cover fraud charges against Stephen Chamberlain, Autonomy’s former vice-president of finance.
Sushovan Hussain, Autonomy’s former chief financial officer and Lynch’s former office colleague, was sentenced to five years in prison in 2019 after being convicted of 16 counts of fraud and conspiracy. Although Hussain’s name was mentioned during opening statements on Monday, his conviction was not.